Aurizon shuts out Alamos

Aurizon Mines (ARZ-T, AZK-X) has rejected Alamos Gold’s (AGI-T) hostile bid, calling it “financially inadequate and opportunistic.”

On Jan. 14, Alamos offered Aurizon shareholders $4.65 per share, or 0.2801 of an Alamos share, representing a 40% premium to Aurizon’s Jan. 9 close.

In a directors’ circular dated Jan. 22, Aurizon said the proposal does not reflect a sufficient premium for its shares.

The premium is low compared to the average of 56% paid for hostile trade transactions within the mines and metals space since 2006, the company’s CEO George Paspalas says in an interview.

But Aurizon shareholders may not even get that premium, because based on Alamos’ Jan. 22 closing price, the offer values Aurizon shares at $4.55 assuming full proration, bringing the premium down to 36%.

Adding to the dismay, Aurizon claims the timing of the potential takeover is “opportunistic,” explaining its Casa Berardi gold mine in Quebec is undergoing a transition phase and not operating at normal levels, which has pushed its shares near its 52-week low.

The market has priced Aurizon shares at a lower point as the company aims to spend 2013 building underground at Casa Berardi to access other mining areas, Paspalas says.

Aurizon adds that Alamos has not fully considered the value of its non-operating assets in Quebec, particularly the feasibility stage Joanna gold project. It notes that research analysts on average value the operating Casa Berardi gold mine at $600 million and the advanced-stage Joanna property at $195 million, for a total net asset value of $795 million, or $4.83 a share, not including the $204 million it has in cash.

As of Jan. 21, the consensus analyst target price for Aurizon was $5.63, within a range of $4.65 to $6.50 a share, the company states.

“If you look at the research analysts’ consensus, this [$4.65] bid is below that,” Paspalas says. “So, Alamos, the market is telling you are low. We are going to tell you are very low.”

Revealing that he had no contact with Alamos before it went hostile, Paspalas adds that “maybe one of the reasons their bid is so low is that they haven’t done their due diligence, and we can convince them there is value [at Joanna].”

In a Jan. 14 conference call, Alamos’ CEO John McCluskey said he approached Aurizon several times over the years to pursue a friendly bid but had little luck. Alamos had signed a confidentiality agreement with Aurizon in 2008, but didn’t finalize a site visit before the expiry date.

In its circular, Aurizon said McCluskey mentioned a potential business combination only once to Aurizon’s former CEO and current chairperson, David Hall, in August 2011. Given this was around the same time Aurizon appointed Paspalas as its new CEO, it declined the offer.

Since September 2011, Aurizon asserts Alamos hasn’t contacted Hall or Paspalas about a possible merger until it sent a letter about the offer on Jan. 13, the day before it approached its shareholders.

In response to Aurizon’s circular, Alamos asserts there is “no new information” that would make it revise its offer.

“It is important to note that every Aurizon shareholder we have met expressed strong support for the offer,” McCluskey said in a Jan. 24 release.

He points out that four of Aurizon’s institutional shareholders agreed to sell their shares at the offer price before it made the bid public. Alamos owns 16% of Aurizon’s outstanding shares.

In an interview on the same day, Paspalas maintained that “the majority of Aurizon shareholders at the moment believe that this is a very unattractive bid in terms of truly valuing the assets in Aurizon.” He adds most institutional shareholders are describing the proposal as a “cheeky bid” or a “low-balled offer.”

Aurizon has adopted a shareholder rights plan to buy more time, and explore other possibilities. Shareholders can vote on the rights plan in a special meeting on March 7.

While Aurizon is in discussions with interested parties, some analysts suggest that the chances for a competing offer may be slim.

“BMO Research views the potential for an interloper bid as low, and expects the Alamos takeover bid to succeed in its current form,” analyst Brian Quast writes.

Alamos plans to apply to regulators to have the rights plan — or “poison pill” — lifted before its offer expires on Feb. 19.

Alamos operates the Mulatos gold mine in Mexico’s Sonora state and has three development projects in Turkey. It’s guiding gold production of 180,000 to 200,000 oz. in 2013 at total costs of between US$500 and US$520 per oz. gold.

If the transaction closes, the combined debt-free entity could have a market capitalization of $2.6 billion and production of 320,000 to 340,000 oz. gold in 2013, Raymond James analyst Gary Baschuk notes.